1. 1
D i s s e r t a t i o n
A study of Motives for Assets Divestment; A case study
of the International Oil and Gas Companies Assets
Divestitures in Nigeria
Nature of the degree: MSc. Management and Finance
Student: Dauda Adamu; BSc. Hon. B&F
Supervisor: Dr. Juanling (Jenny) Huang
Submission Date: 1st
September 2014.

2. 2
Table of Contents
ABSTRACT.....................................................................................................................4
DECLARATION...............................................................................................................5
ACKNOWLEDGEMENTS................................................................................................6
DEDICATION..................................................................................................................7
CHAPTER ONE ..............................................................................................................8
1. 1 INTRODUCTION...............................................................................................8
1.2 BACKGROUND OF THE STUDIES ..................................................................8
1.3 AIMS AND OBJECTIVES..................................................................................9
1.4 STATEMENT OF RESEARCH PROBLEM........................................................9
1.5 THE SIGNIFICANT AND MOTIVATION OF THE STUDY...............................10
1.6 SCOPE OF THE STUDY ................................................................................11
1.7 METHODOLOGY............................................................................................11
1.8 RESEARCH OUTLINE....................................................................................12
1.9 SOURCES AND VALIDITY............................................................................13
CHAPTER TWO: LITERATURE REVIEW.....................................................................14
2.1 INTRODUCING THE CONCEPT OF ASSET DIVESTMENT ..........................14
2.2 ASSET DIVESTMENT ....................................................................................15
2.3 VOLUNTARY OR INVOLUNTARY DIVESTITURES.......................................15
2.4 WHAT TO DIVEST..........................................................................................15
2.5 OBJECTIVES OF THE FIRM ..........................................................................16
2.5.1 Shareholder versus stakeholder view.......................................................16
2.5.2 Corporate efficiency ................................................................................17
2.5.3 Transaction cost theory...........................................................................17
2.6 AN IN-DEPTH OF THE LITERATURE REVIEW..........................................18
Embrace technological change................................................................................24
Overcome two key challenges.................................................................................24
2.8 WISDOM’S FROM THE LITERATURE REVIEW ............................................25
CHAPTER THREE: RESEARCH METHODOLOGY......................................................26
3.1 INTRODUCTION.............................................................................................26
3.2 RESEARCH DESIGN .....................................................................................26
3.3 CASE STUDY METHODOLOGY ....................................................................27
3.4 CHOOSING THE CASE..................................................................................27
3.5 JUSTIFICATION OF THE RESEARCH METHODOLOGY..............................27
3.6 DATA COLLECTION.......................................................................................28
3.6.1 SECONDARY RESEARCH ..........................................................................28
3.6.2 PRIMARY RESEARCH.................................................................................29

3. 3
3.7 METHOD OF DATA ANALYSIS ..................................................................29
3.8 LIMITATION OF STUDY .............................................................................29
CHAPTER FOUR: PRESENTATION OF THE CASE STUDY.......................................31
4.1 THE CASE STUDY: NIGERIA SITUATION HOW IT STARTED......................31
Exhibit A: Demonstration of the Development of Hydrocarbon System......................32
Exhibit C Distribution of the global Oil reserve...........................................................34
4.1.2 Assets Divestment in the Nigerian Oil and Gas Industry.............................35
4.2 THE FOCUSED CASE STUDY: ..........................................................................35
4.3.1 Company Overview ..........................................................................................36
4.3.2 Nigerian Assets of ConocoPhillips............................................................36
CHAPTER FIVE: ANALYSIS AND DISCUSSIONS .......................................................38
5.0 INTRODUCTION.............................................................................................38
5.1 STRATEGIC ANALYSIS .................................................................................38
5.1.2 EXTERNAL STRATEGIC FACTORS ..........................................................38
A) MACROECONOMIC FACTORS .....................................................................39
B) POLITICAL RISK ............................................................................................40
C) TECHNOLOGICAL FACTOR..........................................................................42
D) LEGAL/REGULATORY FACTOR ...................................................................43
5.1.7 INDUSTRY ANALYSIS USING PORTERS FIVE FORCES..............................47
5.2 FINANCIAL ANALYSIS ......................................................................................50
5.2.1 FINANCIAL PERFORMANCE: INCOME STATEMENT ANALYSIS.............50
Demonstration 1: ......................................................Error! Bookmark not defined.
5.2.2 Balance Sheet Analysis ...........................................................................52
5.2.3 Historical FCFF and FCFE..............................................................................55
Demonstration 3: COP Historical FCFF and FCFE (in millions).................................55
CHAPTER SIX: SUMMARY, CONCLUSION AND RECOMMENDATION.....................56
6.1 SUMMARY/CONCLUSION: ................................................................................56
6.3 RECOMMENDATION.........................................................................................59
REFERENCES:.............................................................................................................60
Appendices: ..................................................................................................................65

4. 4
ABSTRACT
This research was to investigate what motivates International Oil and Gas Companies
do to divest assets in the Nigerian context. To explore these concepts this thesis
combines the knowledge of existing academic literature relating the motives behind
asset divestitures with empirical studies in the form of case studies.
Overall, this thesis concludes that the main motive for divesting is to react on or correct
factors, which make the firm inefficient. The case studies of: ConocoPhillips Assets
Sale was examined to explore what motivates firm to divest in practice. However, the
financial analysis covered the examination of ConocoPhillips Financial data for the
period of 5years from 2005-2009. The findings illustrate that the motivation for divesting,
were distinctly different in practice. However, both theories demonstrate how divestitures
are driven by multiple motives originating in strategy or finance. Overall this study finds
strategic and financial motives to be directly related to the decision to divest. It further
reveals that the motives behind asset divestitures are interrelated.

5. 5
DECLARATION
Name of Researcher: Dauda Adamu
ID Number: 13183030
This thesis is submitted in partial fulfilment for the requirements for award of Master of
Science (MSc.) in Management and Finance.
I testify that:
• This thesis is my own effort.
• The contribution of supervision and other to this thesis is coherent with the
Birmingham City University’s Regulations and Policies.
• Word counts: 11,000 (Chapter one to Five)
Date: 1st
September 2014

6. 6
ACKNOWLEDGEMENTS
The thesis would not been accomplished without the support and assistance of
enthusiastic principal supervisor of this dissertation, Dr. Juanling (Jenny) Huang, my
profound gratitude Ma. You have provided the most valuable and professional guidance,
feedback, and most of all, encouragement during the research.
I give heartfelt appreciations to my dear parents, late Alhaji and Hajiya Adamu and my
dearest brother Alhaji Sadiq Adamu for their understanding and encouragement. Their
unconditional love has offered an inordinate encouragement to me emotionally and
psychologically throughout my Master’s Degree.
I also wish to thank the rest of my siblings who were very considerate to me through this
stage.
Irrevocably I wish to thank the Almighty God for his endless blessings on me.

7. 7
DEDICATION
This thesis is dedicated to God, my parent and my entire family members notably; my
beloved brother and his beautiful wife (Alhaji Sadiq Adamu) whose ultimate indulgent,
unending prayers and reassurance to their son inspired to me want to do them proud.

8. 8
CHAPTER ONE
1. 1 INTRODUCTION
The overall field of research in this thesis is corporate organizational changes in the form
of organizational, financial and portfolio restructuring (Brauer, 2006). More distinct, this
research will investigate the phenomenon of assets divestitures by studying it’s
application in practice.
1.2 BACKGROUND OF THE STUDIES
Divestitures or divestments refer to a parent firm’s disposal of a part of the company’s
total assets like a separation, facilities or a business unit. More precisely, divestitures
can be understood as a firm’s adjustments of its ownership and business portfolio
structure (Sun, 2012). This thesis will only focus on the sell-off, also referred to as asset
divestment or asset sell-off. Numerous fields of exploration have made the shortsighted
suspicion that divestitures are essentially the mirror picture of mergers and acquisitions,
subsequently an opposite merger (Brauer, 2006). Divestitures ought to be seen as an
option strategy inside the corporate tool box.
The most recent examination concerning divestitures has concentrated on how the
distinctive hypothetical parts of divestitures are connected and the connection between
the worth produced. Also, the thought processes behind the choice to sell-off assets.
Case in point Shin (2007) contemplated the connection between the riche impacts of the
gainfulness of advantage deals persuaded by the requirement for money. Lang et al.,
(1995) contemplated how divestitures could be utilized as a wellspring of financing and
make effective pick up. Others have examined the causal relationship between
corporate legislation and divestment choices Hillier et al., (2009). These studies illustrate
the variety of theorized opinions regarding divestitures and motives. It is found that

9. 9
further exploration of this field of research would lead to a better understanding of the
causal relationship between divestment and its motive.
1.3 AIMS AND OBJECTIVES
Aim
The aim of the study is to determine why International Oil and Gas Companies (IOCs)
decide to adapt a divestment strategy.
Objective
The research objective is to study the motives of the divestment activities as a strategy
adapted by the IOCs in Nigeria and understand the challenges and opportunities. The
thesis will review some of the actions carried out by the IOCs in respect to divestment
and evaluate their motives. They include;
• To determine the theoretical motives for assets divestment strategy.
• To determine if theory of assets divestitures are the same with divestments in
practice.
1.4 STATEMENT OF RESEARCH PROBLEM
Based on the above, we can define that the objective of this thesis is to study the
motives behind the decision to divest from undertaking a divestiture in the Nigeria
context.
Three underlying questions supporting the main research objectives are formulated as:
A. Which theoretical motives can explain why firms divest?
B. Which motives for asset divestitures do we observe in practice?
C. Were the assets divestments of the IOCs a Portfolio rebalancing or Mass exodus?

10. 10
1.5 THE SIGNIFICANT AND MOTIVATION OF THE STUDY
The inspiration for writing this research rises out of the current scholastic dialog on
intentions behind the choice to sell-off assets. Previously, there have been exceptionally
constrained studies on Assets divestures and its intentions. The present political and
security interferences and problems, conditions that unquestionably have influenced oil
exploration in the delta region of Nigeria, which makes it necessary for firms to renew
their strategies appropriately. Portfolio rebalancing strategy such as divestures has been
discovered to be much more applicable than in recent past as way of adjusting to
external and Internal constrains (Sun, 2012). Therefore, it is then found relevant to
conduct an empirical research on IOCs assets divestments in Nigeria. Hence, it will aid
the government to seek policies to enhance the relationship with multinational oil and
gas-producing firms in Nigeria. Below points summarizes this basis:
1. It will provide insights on key environment factors and challenges affecting the Oil
and Gas Sector in Nigeria.
2. The research will enable Investors to understand the rationale and unravel the
reason for IOCs divestment: challenges and huge potential within the sector
3. This research may serve as a guide to formulate a framework that will promote
active participation of local players in this industry with the focus of the Nigerian content
policy's objective of 70% indigenous involvement by 2020.
4. The study will be used to improve local firm’s readiness and responsiveness to the
challenges.
Other researcher, academia, and student of social sciences; strategic management,
business administrations, finance etc might find it useful.

11. 11
1.6 SCOPE OF THE STUDY
The scope of this thesis is to analyze and discuss divestitures in form of asset sell-off as
a strategy adopted by the IOCs in Nigeria. The researcher’s aim is to balance theory and
practice by investigating the theory found useful for running an empirical research and
for responding to the research question.
This research will pursue to bring a new angle to existing research by analyzing
divestures in the Nigeria context, which has not been done before.
1.7 METHODOLOGY
This is a brief of the intended Methodology of this investigation structure.
The choice of research design is an important factor as the methodology is the mean,
which enables us to reach valid and reliable answers to the research question. Hence,
the researcher intends to use a case study methodology. The reason for using this
research design is found in Yin’s (2009) argument; that a case study is a useful tool for
understanding complex phenomenon, as case studies have the ability to explain links in
a real-life context that are too complex for both Interviews, surveys and experimental
strategies. More in-depth of the methodology will be elaborated in chapter three.

12. 12
1.8 RESEARCH OUTLINE

13. 13
1.9 SOURCES AND VALIDITY
Only public available data will be used as references, which covers annual reports,
articles from periodicals and journals, interviews and newsletters. Only well-known and
trustworthy academic sources will be used as references to mitigate subjectivity through
the different authors’ beliefs. Especially company specific material published by the
company itself is affected by the authors’ point of view. As a consequence, the use of
companies’ specific material was key in this research and then combined with other
primary (Interview) and secondary resources for effective results.

14. 14
CHAPTER TWO: LITERATURE REVIEW
2.1 INTRODUCING THE CONCEPT OF ASSET DIVESTMENT
Companies’ restructure to counter anticipated and ex-post changes in their environment.
Sun, (2012) Hence, Key for all types of divestures is that they exchange control of
assets from the parent company to a set of new managers, either somewhat or totally.
When an organization has chosen that redeploying possessions is ideal, as a way of
rebalancing of total sell off, the managements need to consider which divestment
decision will be most proficient in backing up the fundamental inspiration.
In fact, Moschieri and Mair (2011) lightened that divestments are esteemed intentional-
strategic resolutions, which are likely to enrich profitability goals and company status as
well as value-added corporate performance. Though in the most recent studies on
Divestment, Many scholars found progressive connotation concerning divestitures
therefore link to corporation performance/strategic (Hanousek et al., 2009; Owen et al.,
2010; Sun, 2012). Sun, (2012) elaborates further, that that there are numerous reasons
that motivate firms to consider assets spin-off, these ranges from specific needs for
financial requirements, strategic intentions, and executive need to refocus in to a core
activity or as a result of corporate governance. These factors are significant variables
influencing intention to divest or post-divestment implementation
Bruner (2004) found that most divestitures are actualized through spinoffs and holding
offer offs. The explanation behind this is found in the intentions consolidated with the
different aspects of the diverse categories of divestures. Comparing asset sell-offs to
other types of divestitures show that it is the only type that does not always result in
creation of a new legal entity (Birkinshaw, 1997). Spin-offs and carve-outs have the

15. 15
advantage that they allow investors to invest in just one part of the business, which
makes it easier to value the business unit (Klein, 1986).
2.2 ASSET DIVESTMENT
In asset divestitures, the parent body offers a part of its assets for an alternate firm.
Dephampilis (2010) characterizes an asset divestiture as:" the offer of a part of an
organization’s resources for an interested bidder, by and large, bringing about a money
imbuement to the parent firm. Such holdings may incorporate a product offering,
subsidiary, or division". The purchasing organization subsequently obtains dominant part
control of the benefits being referred to, while the stripping firm gets money and/or
imparts and surrender proprietorship and control of a piece of the organization’s assets
(Khan & Mehta, 1996).
2.3 VOLUNTARY OR INVOLUNTARY DIVESTITURES
Divestitures can be voluntarily or involuntarily. Voluntarily divestitures are a deliberate
decision made by the management of the divesting firm to trade some of its assets into
financial resources (Khan & Mehta, 1996). However, not all decisions to divest are taken
voluntarily. External institutions can force a company to divest assets motivated by e.g.
financial distress or competition laws. When the sale is being forced externally upon the
company, cash infusion from the sale does not necessarily have the same wealth
implications as a voluntary divestiture (Boudreaux, 1975).
2.4 WHAT TO DIVEST
Within the divestment context, a central question is which assets the company should
divest? The types of assets divested can be multiple depending on the vendor
company's organization setup, strategy, competitive environment, etc. At an overall

16. 16
level, one can argue that three categories exist (DePamphilis D. M., 2010):
• Specific product, brand, business unit
• Specific geographical market branch
• Part of the company’s supply chain (e.g. a production plant or a distribution
channel)
Often the divested asset is a combination of any of the three dimensions stated above,
e.g. divesting a specific product on a specific market.
2.5 OBJECTIVES OF THE FIRM
To gain an understanding of the underlining reasoning behind a firm’s motives to divest
and the related value generation it is relevant to first define the overall goal of the firm.
Generally, value creation must be seen as the main premise for firms to exist.
2.5.1 Shareholder versus stakeholder view
Within the economic literature, two perspectives on this firm’s overall purpose have been
proposed; the classic shareholder view and the newer stakeholder view Brealey et al.,
(2008). The shareholder view argues that the overall goal of a firm is to maximize
shareholder value that can be seen as reflected in the market price of the company’s
common stock. Achieving this goal relates to the notion of maximizing economic profit,
rather than accounting profit. Shareholder value can therefore be seen as the sum of the
firms’ investment; financing and dividend decisions which affect the ability to generate
future cash flows, thus increasing share prices Brealey et al., (2008).
Because firms have to make trade-offs to exist, they need to have one single objective.
Therefore, it is believed that maximizing shareholder wealth includes stakeholders’
interest. Jensen (2001) relating this to the research, the general motive behind asset
sell-offs must be to create shareholder value through a tactical strategy. Firms may state
various motives for divesting assets, but the underlying reasoning must be that an asset

17. 17
is sold off if this creates higher shareholder value than keeping it in-house or makes the
business more commercially viable.
2.5.2 Corporate efficiency
DePamphilis, (2010) stated that, taking into account the dialog of quality creation we find
that upgrading shareholder value must be proportionate to maintain, restore or enhance
corporate effectiveness. An effective firm must accordingly be described as a firm that
can enhance shareholder return. Consequently an effective firm is fit for surveying when
a benefit produces higher NPV for the firm. Its subsequently characterize corporate
effectiveness as the general objective which will make the firm strip its asset.
2.5.3 Transaction cost theory
The concepts of value creation and efficiency are associated with transaction cost
theory, agency costs theory and asymmetric information theory. These theoretical
concepts argue that corporate changes improving efficiency will lead to cost reduction.
Regarding transaction cost theory, Coase (1937) argued that the choice between
conducting an activity inside the firm and using the market is a function of transaction
costs. Williamson (1979) specified that this is especially influenced by the presence of
asset specificity as specialized assets are subject to contracting problems which makes
it more likely that an asset is retained within the firm. Concluding, they argue that an
important reasoning for divestments can be found in the transaction cost theory. Further
in this lies that firms should aim for optimizing efficiency. Efficiency is thereby a reason
for divestment itself.

18. 18
2.6 AN IN-DEPTH OF THE LITERATURE REVIEW
From examining the perception of Divestments, it was determined that firm’s efficiency
could largely be the objective of the corporation. Henceforth, the main incentive to divest
would be to stimulate company efficiency by strategizing or seeking financial supports in
the event where there is a financial constrain Dephampilis (2010). In relative, the in-
depth will syndicate theoretical interpretations in the academic literature to search which
purposes and fundamental drivers that leads to divestitures and where this related value
creation originates from. Theory and empirical findings is presented by distinguishing
amongst two different overall classifications of reasons driving asset sales; strategic and
financial motives. Haynes et al. (2003) argue in support of Dephamphilis (2010) that
these categories represent all essential factors.
2.6.1 STRATEGIC MOTIVES
To establish on overall understanding of how corporate strategy influences the decision
to divest, we start by exploring the overall idea behind corporate strategy. Hereafter, we
move on to explain empirical findings and specific strategic factors motivating firms to
divest.
2.6.1.1 THE OPTIMAL CORPORATE STRATEGY
Strategy can be defined as ‘’the overall plan for deploying resources to establish a
favorable position” (Grant, 2005, page 14). Favorable positions relate to the firm
establishing competitive advantages relative to its competitors. The capability to create
and uphold competitive advantages is a central point in corporate strategy.
The Resource based view (RBV) offers a theoretical explanation of the importance of the
notion of competitive advantage Barney (1991). RBV argue that resources and
capabilities put together the right way can create a competitive advantage and hence,

19. 19
create value for the firm. Furthermore, according to the RBV, competitive advantages
are conditioned by two factors:
• Scarcity and
• Relevance. Grant (2005).
Barney (1991) contributed to the debate on how to sustain competitive advantage by
stating that competitive advantage is created by the firms’ unique mix of resources. By
upholding heterogeneity in its mix of resources and capabilities, the firm can sustain a
competitive advantage. Barney further highlights four characteristics of the resources
and capabilities that promote this state: The “strategic assets” must be 1) valuable, 2)
rare, 3) non-immitigable and 4) non-substitutable.
Hence for firm’s strategy to be successful, consistency between resources and
capabilities and corporate strategy is essential, which in turn creates the need for
strategic fit between internal factors and external environment.
Porter (1987) argues that; ”Corporate strategy is what makes the corporate whole add
up to more than the sum of its business unit parts” (Porter, 1987, page 117). The firms’
strategy therefore must take into account how the different business units fit together.
Adjusting the firm strategy must therefore be seen as a primary motivation behind the
decision to divest assets. The strategic motives to divest can in a broad sense be
categorized into a proactive and a corrective reasoning. Proactive decisions seek to
redesign, split, or transfer assets and business units as a way of adapting to changing
market opportunities (Siggelkow, 2002). Corrective divestitures on the other hand seek
to make up for prior strategic mistakes or lack of reaction to a needed adjustment e.g.
refocus on core businesses, react on industry-level competition (Markides, 1992).

20. 20
2.6.1.2 THE STRATEGIC FIT THEORY
Relating to corporate strategy, a main driver behind the decision to sell-off an asset is
misfit in the company’s strategy. It can be argued that it is inefficient for a firm to hold on
to a misfit asset because firms’ resources are directed towards the assets at the
expenses of more strategic fit assets. Misfit assets within a firm can therefore lead to
non-optimal resource allocation and hence lower value creation. (Grant. 2005)
2.6.2 MARGINAL STRATEGIC REASONS
The motives described in the previous sections all arise due to changing conditions for
the firm. These changes occur internally or externally. As the firm is not able to control
the external conditions, the changes in the environment, in which the firm compete, must
be seen as an important factor influencing the firm’s decision to divest. Generally, the
reasoning is that external changes can make a once profitable asset, holding a positive
NPV, to become unprofitable. Dephampilis (2010) as a result, the firm may not be the
optimal owner of the asset and divesting can thus be considered.
External factors can be divided into five different categories:
a) “Industry attractiveness”,
b) “Force of the competition and market alliance”,
c) “Macroeconomic changes”,
d) “Technological changes” and
e) “Political regulations”.
It should be noted that external factors affect the firms differently depending on the
industry characteristics.
2.6.3 FINANCIAL MOTIVES
The financial motives discussed in this section are closely related to strategic decisions,
corporate control and external economic shocks and therefore, also the efficiency

21. 21
hypothesis. The motivation for distinguishing financial motives from strategic is that
academics have found that firms selling assets are motivated to do so by their financial
situation rather than by the discovery that some other firm has a comparative advantage
in operating the assets (Lang, et al 1995). In general, no universal definition of financial
motives exists as the categorization varies according to the goal or the analysis.
Based on the previous research, the researcher defines that for a firm to have a financial
motive; it must be in a poor financial condition. Studies in the past identified three factors
that may cause a poor financial condition: poor operating performance, capital
constraints and the cost of financial distress. This categorization is hence more a state of
the firm. However this section will only concentrate on explaining how and why this state
of poor financial condition might lead the firm to divest. One similarity between all three
factors is that they influence the overall net present value of the firm, as it may decrease
the overall firm value to an extent such that a divestment becomes relevant.
• Underprivileged operative performance
First and foremost, a financial motive for divesting relates to poor operating
performances as it makes sense that firms do not want to hang on to poorly performing
operations and therefore seek to divest to increase profitability. Hillier et al. (2009) found
that one of the most important factors in the decision to undertake asset sales are poor
operating returns. Poor operating performance can take place in either a business unit or
at an overall firm level. Research has proved that divesting firms have significant lower
operating performance than their industry peers at the time of divestment (Chen & Guo,
2005)(Cho & Cohen, 1997). This implies that the declining performance is rather a result
of the firm’s changed competitive strength than a general downturn in the industry.
• Leverage and the Cost of Financial Distress
Due to extensive leverage and/or poor operating performance, some firms can be

22. 22
characterized as being in financial distress. For firms in this state, the short-term goal is
solely to survive. Therefore firms can be forced to divest their most profitable assets and
core business instead of the least strategic business. Maksimovic and Phillips (1998)
show that firms intend to sell their most efficient assets, whereas firms in a control
sample (i.e. non-distressed companies) sold their least efficient assets. The reason is
simple and reflects management’s last attempt to stay in business. Hence, firms in
financial distress are an involuntary divestment where the motivation is simply that the
firm does not have a choice whether to divest or not. Since financial distress arises when
firms cannot pay back debt obligations, it is found relevant to explore the theoretical
reasoning behind how much firms should borrow.
• The Trade-off theory
Drawing on capital structure theory, proposed by Miller and Modigliani, we know that
optimization of value depends on the firms debt level (Modigliani & Miller, 1963). As
interests are tax-deductible leverage creates a tax shield. However, if firms borrow
extensively, we also observe a higher risk for financial distress. The cost of financial
distress is based on the probability of distress and the magnitude of costs if distress
occurs. Due to the cost of financial distress, firms cannot borrow extensively without at
some point decreasing firm value. This is known as the trade-off theory. The theory
states that the firm faces a trade-off between a high tax shield and the cost of financial
distress as the probability of distress increases heavily as firms’ borrow (Brealey, Myers,
& Allen, 2008).
The important take-away is the fact that the level of debt affect the value of the firm.
• Capital limitations
Another financial motive for divestitures is the fact that sell-offs can occur as the firm
needs to raise funds and cannot do so cheaply on capital markets (Lang, Poulsen, &
Stulz, 1995).

23. 23
The rationale gain relates to the notion that firms should choose projects generating the
highest NPV. To be able to make new investments to ensure future growth and value
creation, firms need capital. However for some companies it can be too expensive to
issue further equity or debt due to overall decreasing performance and/or high leverage.
As a result, alternative sources of financing are pursued i.e. undertaking asset sale. This
is known as the financing hypothesis (Lang, Poulsen, & Stulz, 1995). The theory argues
that in some cases, because the firm has high leverage and/or poor performance, selling
assets will be the most efficient source of new funds. The hypothesis is supported by
later studies that find significant wealth gain in firms due to better utilization of sources of
financing (Shin, 2008).
The financing hypothesis relies on the theoretical reasoning that the cost of issuing
equity or debt is too expensive. The financing hypothesis arises as a result of
information problems making. Myers & Majluf, (1984) argue that due to these information
problems, a pecking order arise, where investments are recommended first to be
financed by internal funds, second by external funds via new debt issues and thirdly with
new issues of equity. By using internally generated funds (plowing back earnings) the
firm avoids any kinds of issuing costs and information problems completely, and is
therefore further expected to create positive news for shareholders.
2.7 OIL AND GAS SECTOR DIVESTMENT SCENARIO
According to a survey conducted by Ernst and Young Global Corporate Divestment
Study, (Paul Hammes 2014) highlights the significant factors that could justify the
trending motivation of assets divestments currently moving across the global Oil and
Gas Sector. The findings illustrate that Focus on capital allocation leads to robust deal
making

24. 24
Capital allocation is paramount for oil and gas companies that have to make long-term
investment decisions against a global backdrop of fluctuating commodity prices, shifting
energy politics, and both changes in supply and demand and the wider capital markets.
Companies are constantly assessing what geographies, asset types and areas of the
value chain offer the best opportunities. This is reflected in robust levels of M&A activity.
Embrace technological change
Evolving technology has become a major consideration in the portfolio review process.
Nearly a third (32%) of executives say technological change has completely or
significantly changed their core strategy, with a further 37% saying their strategy has
changed somewhat.
The successful application of horizontal drilling and hydraulic fracturing technologies, for
example, has transformed the US energy market. The US has moved from major
importer to potential exporter of natural gas in less than a decade. The impact of these
technologies has seen oil field service company’s base M&A strategies on securing a
competitive advantage in new technology.
Overcome two key challenges
Oil and gas companies undertaking strategic divestment identified two challenges to
overcome:
• Macroeconomic- Pricing gaps between buyers and sellers
• Internal-Access to capital
A third of oil and gas executives see value disparity between vendor and buyer as the
main obstacle to completing a divestment. Commodity price is a key Macroeconomic
factor in this and natural gas prices, in particular, continue to have wide regional

25. 25
variations. However, oil prices have been trading in a narrow band close to US$100
during the last 18 months (2013/2014)— a level of pricing stability that the industry has
not seen for 15 years.
For 29% of executives see financial motives as buyer access to capital is the greatest
challenge when divesting an asset. Increasing capital markets activity could see buyers
with good balance sheets expand acquisition activity, possibly exploiting the competitive
advantage over less well-funded peers. The IPO window reopening has also provided a
credible alternative to divestment. As Hammes (2014) concludes
2.8 WISDOM’S FROM THE LITERATURE REVIEW
The literature review has shown how firms can be motivated to divest assets. The
multiple incentives have been presented in categories and discussed individually.
However the researcher has experienced that using a categorization and isolating single
motives sometimes, cannot be justified as reasons, which are often a combination of a
number of factors. E.g., a firm divests due to capital constrains, which is a result of long
term poor financial performance arising due to inconsistencies in the execution of the
core strategy or special needs for funds.

26. 26
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 INTRODUCTION
This chapter acknowledged the several strategies for carrying out a research project.
3.2 RESEARCH DESIGN
The choice of research design is an important factor as the methodology is the means,
which enables us to reach valid and reliable answers to the research question. The
following will therefore elaborate on the reasoning behind the choice of methodology, by
outlining the thesis and how each section contributes to answer the overall research
question.
The research question overall seeks to explore the divestiture phenomenon in general.
Therefore to answer the research question the research design should allow drawing
holistic conclusions. Moreover, since the overall research question is in two-fold as it
encounters both the reasons and the effects of asset divestments; the researcher also
finds it necessary to construct a research design that allows the exploration of both
features without compromising validity and reliability. When exploring the first part of the
research question; reasons behind divestments? the researcher must chose a
methodology that allows for the reasons to be firm specific as suggested by Yin’s (2009).
The methodology should be able to capture the presumed complexity that lies in the
motives behind asset divestitures in the Oil and Gas Sector. Finally, the research
method must aim for objectivity of the findings to allow for general conclusions on a
firm’s specific matter. As a result the researcher finds it reasonable to choose a mixed
methodology. More specifically, the case study is used, as this method of research best
satisfies the criteria and alternatively; it would be relevant to conduct interviews, as this
will allow the researcher to obtain internal knowledge about certain firm specific factors.
Interviews are a method of collecting data in which selected participants are asked

27. 27
specific questions relating to the investigation for their opinion on the subject matter
(Hussey and Hussey, 1997)
3.3 CASE STUDY METHODOLOGY
Based on the discussion above it is found relevant to use the case study methodology.
The reason for using this research design is found in Yin’s (2009) argument; that a case
study is a useful tool for understanding complex phenomenon’s as case studies have the
ability to explain links in a real-life context that are too complex for both surveys and
experimental strategies. Nygaard (2005) further highlights that case studies provide the
basis for a critical discussion that gives greater depth and understanding.
3.4 CHOOSING THE CASE
A single case has been tactically designated; Yin (2009) stress that the criticism of single
case studies could create a possibility of detecting unique results. The selected case is
the ConocoPhillips Assets Sale and it is chosen based on a broad public news search,
which indicated that the case has a peculiar situation surrounding the sell-off event.
Choosing a case from the industry will give the benefit, which could increase the
possibility of testing a broader range of theorized motives, and how they interact. Further
basing the conclusions on this case gives a more powerful result (Yin, 2009).
3.5 JUSTIFICATION OF THE RESEARCH METHODOLOGY
Based on these reasoning’s, case studies seem as a useful approach to explore the link
between the various drivers and motives behind asset divestments as the method allows
us to verify whether and how established theories apply in real life cases.
The researcher adopt the view of Yin (2009), and believe that generalization is possible
under a robust research design, meaning that case studies are useful when the goal of
the research is to expand and generalize theories, hence analytical generalization.

28. 28
Olsen & Pedersen, (2002) supports this view by noting that high validity and quality will
make the study trustworthy and hence applicable to other cases. Flyvbjerg (1996)
however also notes that by strategically selection of cases it is possible to increase the
generalization. On the other hand, the advantage of Interview can be drive from Hussey
(199) opinion as it can produce a vast depth of primary information that are fixable, high
response rate and validity. It is therefore imperative to use both methods.
3.6 DATA COLLECTION
The data used in this research are collected using primary and secondary data collection
methods. Cooper and Schindler (2008)
3.6.1 SECONDARY RESEARCH
The research procedure starts with exhaustive secondary research on inside and
outside sources being completed to source qualitative and quantitative data identifying
with Assets divestitures phenomenon
The auxiliary exploration sources that are regularly denoted to involve however are not
limited to:
• Company sites, financial reports, agent reports, financial specialist presentations
and SEC Filings.
• Oil and Gas Industry exchange journals and oil and gas global watch market
reports.
• Internal and outer exclusive databases.
• National government/NNPC archives, factual databases and business sector
reports.
• News articles, press discharges and web-throws particular to the organizations
working in the oil related dealings

29. 29
3.6.2 PRIMARY RESEARCH
The researcher conducts essential meetings with industry members and reporters to
approve its information and investigation. A run of the mill examination meeting satisfies
the accompanying capacities:
• It gives direct data on the motives, impacts, aggressive scene, future viewpoint of
the benefits divestment, for instance.
• It helps in approving and reinforcing the optional exploration discoveries.
It further creates the Analysis Team's skill and reasonable understanding of the ideas of
benefits divestitures methodology
3.7 METHOD OF DATA ANALYSIS
The data outsourced for this study were presented, analyzed and interpreted with the aid
of PESTLE analysis; porter five forces and financial performance analysis that will be
bred by using Microsoft-excel. see the formulae sheet in the Appendix.
3.8 LIMITATION OF STUDY
Base on the justifications of the research, these methods required firm involvement
which possesses limitations as firms presumably act in self-interest and their
involvement potentially make the response subjective thus, the results are more precise
and less universal. The time frame was also a challenge since the interviews was to be
conducted in Nigeria. This was a bit difficult and expensive thus, most of the interviewers
were available at some times or the other here in the UK, as a result that limit the
challenges of accessibility of the participant. The case study design has a drawback that
the results and the findings could not be generalized to other IOCs activities in Nigeria
other than the selected case study. Furthermore, the personal interview method has the
limitation that, respondents may choose to provide responds that first come to mind
which has the challenge of memory and scarcity of relevant resources and other

30. 30
challenge posed by lack of clear access to network signals which constantly interrupted
the telephone interviews and internet tools such as Skype.

31. 31
CHAPTER FOUR: PRESENTATION OF THE CASE STUDY
4.1 THE CASE STUDY: NIGERIA SITUATION HOW IT STARTED
A Background of the Upstream Assets Divestment in Nigeria
According to the global energy watch (2012), the objective of oil and gas operations is to
find, extract, refine and sell oil and gas, refined products and related products. It requires
substantial capital investment and long leads times to find and extract the hydrocarbons
in challenging environmental conditions with uncertain outcomes. Exploration,
development and production often take place in joint ventures or joint activities to share
the substantial capital costs. The outputs often need to be transported significant
distances through pipelines and tankers; gas volumes are increasingly liquefied,
transported by special carriers and then regasified on arrival at its destination. Gas
remains challenging to transport; thus many producers and utilities look for long-term
contracts to support the infrastructure required to develop a major field, particularly off-
shore.

32. 32
Exhibit A: Demonstration of the Development of Hydrocarbon System

33. 33

34. 34
Sources: http://www.tagoil.com/20131104_TAG-Oil-Cardiff3-ChealE-Update.asp
Exhibit C Distribution of the global Oil reserve
Sources: http://www.tagoil.com/20131104_TAG-Oil-Cardiff3-ChealE-Update.asp
Though, the report notes that, the industry is exposed significantly to macroeconomic
factors such as commodity prices, currency fluctuations, interest rate risk and political
developments. These was also observed in the literature as noted by Hames (2014) The
assessment of commercial viability and technical feasibility to extract hydrocarbons is
complex, and includes a number of significant variables. The industry can have a
substantial effect on the environment momentous to its procedures and is frequently
obligated to remediate slightly consequential impairment. Regardless-of the trials, fiscal
policy of oil and gas extractive activity and the resulting profits is a main basis of income
for various authorities. Governments remain likewise growing their cleverness plus
considering securing a momentous portion of any oil and gas manufactured on their

35. 35
autonomous space. As such, many participants within the industry are also looking for
the right strategy, repositioning and assets rebalancing that will enable them to be viable
and withstand internal and external challenges. Energy Global watch (2013)
4.1.2 ASSETS DIVESTMENT IN THE NIGERIAN OIL AND GAS INDUSTRY
The Minister of Petroleum Resources, Mrs Diezani Alison-Madueke (2014) while
delivering a keynote address with the theme “Assets Divestment in the Nigerian Oil and
Gas Industry, ‘’Opportunities and Challenges” at the recently concluded 2014 Offshore
Technology Conference (OTC) in Houston, Texas, USA; highlighted that international oil
companies (IOCs) in Nigeria are expected to divest over 20 oil blocks with a monetary
value of about $11.5 billion before the end of 2014. This is further to the fact that there
has been a total sum of asset divestment transactions worth over $6.7bn already
completed between 2010 and 2013. Of these divestments which are currently in the
pipeline; some stalled either as a result of the initial lack of minister’s consent or due to
ongoing legal disputes. This research looks at the current state of the ongoing
divestments and also at some factors, which may play a role in some of these
divestments going forward.
4.2 THE FOCUSED CASE STUDY:
ConocoPhillips Assets Sale
In 2012, ConocoPhillips, a US-based oil group agreed to sell its 20% interests in
onshore OMLs 60-63 to Oando Energy Resources (OER) for a figure of around $1.7
billion. The deal also included two offshore blocks consisting of a 95% operated interest
in OML 131 and a 20% interest in OPL 214 as well as a 20% interest in the Kwale-Okpai
independent power plant. The deal also originally included ConocoPhillips 17% interest
in the Brass LNG project but OER eventually decided not to go through with the Brass
LNG acquisition. OER terminated the Brass LNG purchase agreement and entered into

36. 36
an amendment agreement with ConocoPhillips in relation to the proposed acquisition of
its Nigerian oil and gas business.
4.3.1 Company Overview
ConocoPhillips is a multinational vertically integrated energy company headquartered in
Houston, Texas, and operates in over 30 countries. Conoco Phillips trades under the
symbol COP on the New York Stock Exchange (NYSE). At the year-end of 2009,
Conoco Phillips owned assets of $152 billion, and employed over 30,000 people.
Globally, Conoco Phillips is the sixth largest owner of proved reserves, and fourth
regarding refining capabilities. The Company’s Global Industry Classification Code
(GISC code) is 10102010 classifying Conoco Phillips as an Integrated Oil and Gas
business. In order to understand how Conoco Phillips earns and sustains their profits,
some oil basics, and the oil and gas industry will be explained. GlobalData, (2013)
4.3.2 Nigerian Assets of ConocoPhillips
ConocoPhillips has a 20% stake in four onshore oil-mining leases in Nigeria: OML 60,
OML 61, OML 62 and OML 63. Other stakeholders in these leases include the Nigerian
National Petroleum Corporation (NNPC) (with a 60% stake) and Eni (with a 20% stake).
Eni is the operator of these leases. The four Nigerian leases produced around 45,000
barrels of oil equivalent per day (boe/d) in 2011, which included 19,000 barrels per day
(bpd) of crude oil, and 157 million cubic feet per day (MMcf/d) of natural gas.
Furthermore, ConocoPhillips has a 47.5% stake and is the operator in OML 131, which
is located, offshore with a 20% stake in the ExxonMobil-operated OPL 214. The OPL
was a deep-water license covering an area of 639,000 acres and was acquired in 2002
by ConocoPhillips. It contains the Uge field, which was developed in 2005. Two more
fields, North Uge and Nza, are scheduled for exploration in 2012. The assets of

37. 37
ConocoPhillips also include a 20% interest in a 480 MW gas-fired power plant in Kwale-
Okpai. The plant is operated by Eni, which holds a 20% stake, while the Nigerian
National Petroleum Corporation holds a 60% stake and 17% stake in a planned Brass
LNG facility in Nigeria’s central Niger Delta.
Exhibit D: ConocoPhillips Nigerian Asset’s coverage
Sources: GlobalData

38. 38
CHAPTER FIVE: ANALYSIS AND DISCUSSIONS
5.0 INTRODUCTION
As it was observed and agreed in the literatures reviewed that there are two possible
reasons that motivate firms to consider rebalancing their portfolios or assets divestitures,
this chapter present the findings of this research, analysis and discursion in order to
observe whether academic theories of motives of divestment are the same in practice.
5.1 STRATEGIC ANALYSIS
The purpose of this section is to determine whether ConocoPhillips decision to divest
Assets was motivated by strategic factors as such the researcher adapts the PESTLE
analysis and Porter’s five forces to ascertain the research objective. (Porter, 1988)
5.1.2 EXTERNAL STRATEGIC FACTORS
The succeeding analyses will only emphasis on contexts that are reflected the most
significant and precarious external reasons. The industry in which Oil and Gas operates
is defined as: The Nigerian Oil and Gas industry with production and sale to B2B and
B2C. Overall the main competitive parameters for the market for the petroleum
resources are illustrated as the price, (ConocoPhillips, Annual Report, 2011/12).
Therefore key success factors when competing in the industry is considered to be
obtaining economics of scale through efficient production. The external and industry
analysis will be based on these definitions. The textboxes summarizes external changes
that have influenced ConocoPhillips Assets Sell-off.

39. 39
A) MACROECONOMIC FACTORS
The oil and gas industry has been dominated by long-term structural trends; however,
given the most recent economic recession, the petroleum industry is cyclical since more
people are reducing their fuel costs to save money. This cyclical trend is driven by
supply and demand. However production costs are still affected by changes in the
macroeconomic factors. Therefore ConocoPhillips and the oil and gas industry in
general in 2006 and 2007 were affected by increasing energy costs (oil prices). Further
the price on the key resources nearly doubled in 2007/2008. A reason for this is that
increasing competition and consumer’s price elasticity made it difficult for ConocoPhillips
to adjust the price accordingly to changes in energy and commodity prices
(ConocoPhillips Annual Report, 2006/07) (ConocoPhillips 2007/08).

40. 40
Source: EIA
We can see for the most part that oil price mirrors production and consumption with one
exception in 2008 known as the “oil bubble”. The Graph further demonstrates how the
oil industry is inelastic. Elasticity is apparent when prices get too high such as the oil
bubble in 2008. While a strong economy is necessary for business to be profitable,
petroleum is a product that the world could not function without until a viable and easily
produced alternative fuel sources are discovered. The demand for petroleum proves
necessary for many applications other than transportation.
According to the U.S. Energy Information Administration (2014), “When petroleum
products are burned to produce energy, they may be used to propel a vehicle, as would
be the case with gasoline, jet fuel, or diesel fuel; to heat a building, as with heating oil or
residual fuel oil; or to produce electric power by spinning a turbine directly or by creating
steam to spin a turbine. In addition, of course, oil products may be used as a raw
material (a "feedstock") to create petrochemicals and products, such as plastics,
polyurethane, solvents, and hundreds of other intermediate and end-user goods.” Even
though the world relies on petroleum for survival, a stronger economy is necessary for
creating positive growth and earnings in the future in order for the petroleum industry to
be sustainable.
B) POLITICAL RISK
As part of its strategic plans to cut back on less profitable overseas assets in order to
focus on low-cost domestic shale production in the US, ConocoPhillips has announced
that it will sell all of its Nigerian assets to Oando Energy Resources Inc. for $1.79 billion.
This is simply because according to the interview conducted by the researcher with one

41. 41
of the Project Directors (interviewee A) within the Industry states that:
“Nigeria has become a more and more difficult place to do business and the increasing
risk of violence between rival factions could severely hinder oil production in the future,
with the area around the Niger delta especially prone to pirate attacks and theft’’.
ConocoPhillips’s decision to divest its Nigerian assets could have been reinforced by the
unwholesome business environment for oil and gas investors in the country.
Interviewee B in another dimension during a telephone conversation with the researcher
on August 1st
2014 when asked;
“If the Nigerian Government was doing enough to protect investors’ stakes in the Niger
Delta” her response reaffirmed our initial speculations as she emphases;
“The Nigerian government needs to promote a more investor-friendly environment for oil
and gas investors as investors in Nigeria face the challenges of criminal activities, tribal
warfare and revolutions within the country. Kidnapping of company officials, attack on oil
installations like rigs and pipelines make working in the country difficult for companies.
She noted that, she has lost counts to how many foreign expatriates were affected as a
result lives and assets worth billions of dollars stolen’’.
Also enquired by the researcher if that was one of the rationales for Asset divestments?
Her response was positive as she explain another scenario; “In 2010, British Gas
Exploration and Production (BG), despite having huge investments in Nigeria,
threatened to pull out of the country due to the turbulent oil and gas sector. Corruption
and fraudulent business practices also affect the business environment of the country.

42. 42
C) TECHNOLOGICAL FACTOR
Staff of an Americas-based oil and Gas Company with a subsidiary in Nigeria
(ConocoPhillips) that is considering divesting its Assets, was contacted by the
researcher. In order to gain an in-depth knowledge with regards, what
structures/transaction has the company evaluated concerning a divestment or assets
sell-off? Below is the summary of the points noted?
There are few industries that have undergone as much dramatic change as the oil and
gas sector, says the Chief Financial Officer of a Nigeria company operating in the
industry. “Horizontal drilling and fracking have made previously unprofitable deposits
profitable,” the CFO notes. “These technologies are responsible for the drilling booms
happening across the major oil producing Nations, as drillers are now able to access oil
and gas deep under layers of rock in these countries.”
Accordingly, the CFO has been involved in a transformation of his business that has
seen it completely revamp its core business to keep pace with developments in
horizontal and fracking technology. “We consider some units that are based on out-
dated technologies, and are therefore no longer economically viable,” he says. “This is
occurring throughout the industry, as companies seek to rebalance their portfolios to
keep up with technological developments.”
As companies navigate the revolution in the oil and gas industry, the portfolio review
process has come to the fore. Reviews have proven a valuable tool for identifying
acquisitions, growth opportunities and subsidiaries for divestment.
In its most recent divestment, the company’s annual portfolio review process was the
main driver, says the CFO.
The company relies on the review to “... quantify the current and future attractiveness of
subsidiaries’ markets, units’ competitive positions, cost synergies with other parts of the
business and whether or not subsidiaries are part of our core business.” Elaborates the

43. 43
CFO. Further clarified by the Company Sectary of ExxonMobil, “The Nigerian Assets
could have declined in production and therefore are no longer viable. Majority of the
Assets owns by ConocoPhillips for example, picked in production, reached plateau and
declined or the technology are obsolete therefore are increasingly a Borden to the firm.”
D) LEGAL/REGULATORY FACTOR
i. Portfolio rebalancing or mass exodus?
Based on an Interview conducted by the researcher, if the motives were done to carry
out a portfolio rebalancing or deliberate mass exodus of their Nigerian Assets?, A
Director, in one of the IOCs, whose identity not revealed, because of company policy.
During a Skype Video-chat with the researcher on the 3rd
, of August 2014. Stated that;
"The reasons given for the bunch of advantage deals in the course of recent months
have been differed. As indicated by him, they go from the operational, security troubles
of operating onshore the Niger delta region, the rationalisation portfolio vulnerabilities
from non-subdivision of the ardently discussed oil industry bylaw, (the Petroleum
Industry Bill-PIB). Inland sanctuary anxieties have been a specific worry for the
International Oil and Gas Companies, which has endured determined security episodes
which includes but not limited to pipeline destruction, and oil burglary, expressed that, oil
robbery occurrences in the nation has fetched it an expected $700m, to his company
alone. He lamented
Be that as it may when asked the same inquiry to affirm from the Government viewpoint,
the legislature and NNPC staff hotly debated the figures.
As per the authorities,

44. 44
"General, a substantial portion of the benefits being sold are matured assets onshore the
Niger Delta locale, which are regularly more defenceless and vulnerable to operational
and security issues in the area. He further stated that, "We do not think that the current
wave of divestments predicts a mass wave of IOCs exodus from Nigeria. In genuine
truth it seems to speak to a movement or shifting focus in IOC’s' system towards the
offshore which presently represents no less than 80% of Nigeria's aggregate
production". The Nigerian government and NNPC, however, stated that an adverse
operating environment in the country did not trigger ConocoPhillips’s decision. According
the group general manager of NNPC's public affairs department, when contacted by the
researcher; said that,
“ConocoPhillips’ decision to sell its assets in Nigeria was not as a result of internal
business issues or adverse operating environment” going on to note that Nigeria
remains a destination of choice for investment. He said the divestment decision was as a
result of global reorganization of the ConocoPhillips Group, adding that the company
was selling assets in other countries as part of its global strategy, and the action was not
focused solely on Nigeria.
This was confirmed base on the Information obtained from the Oil and Gas Global watch
as;
“ConocoPhillips has been considering divesting its stake in non- core assets in Nigeria,
as well as in Vietnam, Libya, Algeria and Kazakhstan. Prior to the announcement
regarding the plan to sell the Nigerian assets, the company had announced its decision
to divest its Vietnam assets to Perenco in February 2012. The company had minority
stakes (16.3–36%) in its Vietnam assets. The company is expected to further divest from

45. 45
its assets in Libya and Kazakhstan. In Kazakhstan, it has minority stakes (2.5-24.5%) in
E&P assets including N Block and North Caspian Sea Production Sharing Agreement
and in the Baku-Tbilisi-Ceyhan pipeline. In Libya, ConocoPhillips has a 16.3% minority
stake in the Waha Concession, which produced about 40 thousand barrels of oil
equivalent per day (Mboepd) in February 2012.
However, the researcher observed, while the pace and volume of deals have moreover
suggested an additional widespread IOC slow walkway from Nigeria and augmented
much media obsession on this issue, a closer examination of the upstream assets scene
and development arrangements of different IOCs paint a slightly less intense
representation.
ConocoPhillips must have planned to sell off its entire Nigerian Assets, regardless, for
example, it peers Shell still maintains and retains proprietorship in 30 onshore oil blocks,
while Total, ExxonMobil, and Chevron are still prone to confer a lot of cashflow to
Nigeria's seaward district/offshore in the nearest century from now. The ExxonMobil
Nigerian Producing, company's sectary, reaffirmed this. Additionally, for example, within
the year of declaring that it was offering its 20% working stake in its Usan field in OML
38 to China's state-supported oil firm, Sinopec, for Us$2.5 billion, French IOC, Total in
June 2013 declared that it had started advancement of its offshore Egina field for Us$15
billion in an offer to help its generation qnd production base. Source: NNPC yearly notice
(2013)

46. 46
ii. PIB Passage?
The lack of PIB passage will only serve to continue to stifle investment in the oil sector
as the commercial viability of projects under the proposed changes to fiscal terms in the
PIB need to be ascertained by the IOCs before they consider any more substantial
investments along the oil and gas value chain in Nigeria.
The implications of the delay in its passage are huge for the Federal Government and
the economy as a whole. Hence this delay could also drive more divestments by the
IOCs which ultimately might not be good for the oil sector in the short term as indigenous
capacity is not yet ripe enough to fill in the potential void that may occur as a result. Eco
Bank report (2014)
iii. Industry Attractiveness Using Comparative EPS
In order to show the industry attractiveness of oil and gas investments, it is necessary to
understand how the sub-industries individually perform within the oil and gas market. To
demonstrate how the sub-industries weigh against one another, earnings per share from
2005 to 2009 will compare the top companies within the integrated oil and gas, refining
and marketing, storage and transportation, and exploration and production segments,
historically. Exhibit I quantifies each segment by comparing the 5 year historic average
for EPS. The entire spreadsheet and companies used in calculations can be found in
Appendix. The results of this historic analysis concludes that Integrated Oil &Gas
amongst industry leaders is the most attractive investment averaging an EPS of 5.63,
followed by Refining and Marketing, Storage and Transportation, and Exploration and
Production with respective averages of 3.15, 2.51, and 1.14.

47. 47
5.1.7 INDUSTRY ANALYSIS USING PORTERS FIVE FORCES
The competitive force in the industry was evaluated by employing Porter’s Five Forces
Model. (Porter 1978) Porter’s model measures competitive force through the means of;
barriers to entry, bargaining power of suppliers, bargaining power of buyers, threat of
substitutes, and degree of rivalry. These forces are used to measure opportunity with
respect to the Integrated Oil and Gas environment Conoco Phillips engages in.
BARRIERS TO ENTRY: The threat of new businesses emerging within the integrated
petroleum industry is quite high for several reasons. First of all, start-up costs for a new
company would be astronomical. In 2009, Conoco Phillips spent nearly $143 billion on
their total cost of goods sold. Furthermore, Exploration and Production costs are capital
intensive. Conoco Phillips implemented a capital program funding for 2010 of $11.2
billion of which 86% for support to Exploration and Production, and 12% allocated to
Refining. Investment grade rankings are necessary for financing debt. For example, in

48. 48
2009 Conoco Phillips had a debt ratio nearly 40%, which means the firm does not have
enough working capital, or cash to finance operations or the company is making better
use of their cash. Either way, the integrated petroleum industry is highly capital
intensive. Therefore, could be considered as motives for divestment.
BARGAINING POWER OF SUPPLIERS: Suppliers to vertically integrated industries
include services from companies such as Schlumberger and Halliburton for technical
hardware. Since there is a limited amount of suppliers who provide technical equipment
and the demand for technical supplies is high, means the suppliers wield some leverage
regarding technical hardware and support.
BARGAINING POWER OF BUYERS: Buyers of oil and gas products range from
individual users to large corporations and governments. With the demand of fuel
products extremely high at a current global consumption rate of 31 billion barrels of
crude annually, and the price of fuel being driven by market factors oil industries have
little control of demonstrates that customers have little bargaining power when it comes
to the price of fuel until there is a proven fuel substitute.
THREAT OF SUBSTITUTES: As of yet, there are very few substitutes for oil. Although
technology is moving extremely fast in the area of renewable energy, no ready
replacement for oil has been discovered as of yet. Consequently, there is no immediate
threat of substitution.
DEGREE OF RIVALRY: The vertically integrated oil and gas industry has many
competitors, which are spread out domestically, and internationally implying a high
degree of rivalry. The degree of rivalry is medium and not high since most of the
companies already have a specific market to sell to, and really do not have a definitive
method to differentiate oil or brand name from competitors, other than brand loyalty and
price. However, these benefits are difficult to quantify by the customer and thus render
little advantage. Until peak oil is a major concern, the degree of rivalry will be medium.

49. 49
FIVE FORCES SUMMARY
The oil and gas industry is an attractive business opportunity. At this moment, and for
probably the next decade as the world demands energy via crude oil, the vertically
integrated oil companies will be able to meet the demand. With the barriers to entry and
substitution risk remaining high, there is little room in the near future for the threat of
competition or substitution. Oil companies are in the best position to profit in the future
as oil becomes scarcer. In the future, as oil becomes in short supply, the integrated
companies will be in the best position to profit. Furthermore, the integrated companies
can purchase the assets of smaller distressed oil companies as they deplete their
reserves, and struggle to find new oil. As ConocoPhillips business model is discussed, it
will become clear that ConocoPhillips is in a nice position to gain advantage in relation to
their competition. Nonetheless, with the current happening in Nigeria, ConocoPhilips
assets divestiture could be motivated by their current position.

50. 50
5.2 FINANCIAL ANALYSIS
The aim of the financial analysis is to identify Conoco Phillips’s financial strengths and
weaknesses and thereby explore whether ConocoPhillips had financial motives when
divesting Assets as observed in the literatures. Hence, this analysis will concentrate on
the company activities before the decision to divest period between 2005/2009. This is
because; the financial performance history could throw light to understanding if there
was a financial reason for the assets divestitures.
5.2.1 FINANCIAL PERFORMANCE: INCOME STATEMENT ANALYSIS
Until an alternative fuel source becomes readily available, oil will be in high demand
allowing vertically integrated oil companies to generate astronomical revenues. In
addition, the oil production and marketing industry is capital intensive, especially when
fuel costs are high. Given that, gross profits for the vertically integrated oil companies
are below average, and net profit margins are even slimmer when compared to the
industry average of 36.47%, and 9.89% respectively. In 2009, Conoco Phillips posted
over $136 billion in revenue, with a cost of goods sold nearly $115 billion, resulting in
gross profit over $21 billion equating to a gross profit percentage of 15.47%. Conoco
Phillips net income for 2009 is $4.86 billion with a net profit margin of 3.57%. Exhibit 1
demonstrates how capital intensive the oil industry is, showing the comparative income
statement and profits presented in tabular and graphical form for Conoco Phillips and the
Company’s top competition in the industry. For this and the duration of the analysis the
competition for Conoco Phillips will be limited to Exxon Mobil Corporation and Chevron

51. 51
Corporation since these companies have a comparable market capitalization of $110

52. 52
5.2.2 Balance Sheet Analysis
ConocoPhillips most recent ratio for 2009 is 0.89, and is the most reduced when
contrasted with Exxon at 1.06 and Chevron with 1.4281. This is not disturbing since
Conoco Phillips has undertaken a lot of obligation as long ago specified with the
organization's 39.61% obligation degree. A 40% obligation proportion is not high given
the way of the oil business where the business normal is a disturbing 87.91%82. To help
alleviate obligation costs going ahead, ConocoPhillips arrangements to offer their 20%
enthusiasm toward LUKOIL to pay down obligation to make the Firm more trade solid in
for spendable dough what's to come. Indeed with high obligation, Conoco Phillips can
exhibit solid budgetary quality, liquidity, and capacity to create money streams by
posting a money stream for every offer degree of 10.1334. Conoco Phillips money
stream for every offer is very solid when contrasted with Exxon and Chevron at 6.6 and
11.27 individually, considering Exxon and Chevron have much lower obligation

53. 53
proportions of 7.8%, and 10.2%. Moreover, selling their assets including the Nigerian
assets will help get Conoco Phillips obligation degree closer to Exxon and Chevron,
which ought to give a bigger come back to value in the years to come.
Conoco Phillips return on assets and return on equity for 2009 is 3.18% and 7.78%
respectively. This is somewhat lower than Conoco Phillips peers with Exxon posting
return on assets and return on equity of 8.26%, and 17.44%, and Chevron 6.44%, and
11.42%. Conoco Phillips return on assets and return on equity is affected by the high
capital expenditures such as the $11.2 billion invested in exploration and production for
2010. On February 11, 2011 Conoco Phillips announced on increasing capital
expenditures over 20% up to $13.50 billion in 2011 of which 90% will be allocated to
exploration and production. In addition, ConocoPhillips raised its quarterly dividend by
20%, and plans to buy back $10b in shares of company stock. This supported by Myers
& Majluf, (1984) which argued that, “By using internally generated funds (plowing back
earnings) the firm avoids any kinds of issuing costs and information problems
completely” This is part of a two year plan aimed at reducing debt, increasing
shareholder returns, increasing dividends, and liquidating assets which are no longer
crucial for Conoco Phillips exploration segment. The company annual reports
(2010/2011)
The most positive attribute discovered in the balance sheet analysis is ConocoPhillips
dividend pay-out and dividend yield for 2009. Looking at Demonstration 2, it is apparent
ConocoPhillips has the highest dividend pay-out, and dividend yield of the three
companies posting 58.3022%, and 3.7422% respectively. ConocoPhillips appears to be
committed to paying high dividends given the recent announcement previously
mentioned.

54. 54
Demonstration 2: Dividend yield comparison
41.62%
50.58%
58.30%
(%) Dividend Yield
2009
ExxonMobil Cheveron ConocpPhillips
Series1 Series2
(%) Dividend Payout 2009
ExxonMobil
Cheveron
ConocpPhillips
41.61%
50.58%
58.30%
Payout analysis
Series2 Series1

55. 55
5.2.3 Historical FCFF and FCFE
One of the hallmark measurements of a company’s financial performance is free cash
flow. Free cash flow to equity (FCFE) measures the amount of cash a company can
afford to return to their stockholders, while free cash flow to the firm (FCFF) is the sum of
the cash a company can return to all claim holders in the firm including both regular and
preferred stockholders, as well as bondholders. While both metrics are important, free
cash flow to the firm is more significant for Conoco Phillips given the firm’s current
capital structure of approximately 40% debt. Exhibit 3 presents in tabular and graphical
form both free cash flow to equity and free cash flow to the firm. The historical
derivations of both the FCFF and FCFE are presented in Appendix.
Demonstration 3: COP Historical FCFF and FCFE (in millions)
Source: Data taken from S&P Net Advantage:
http://www.netadvantage.standardandpoors.com.proxy.lib.pdx.edu/NASApp/NetAdvanta
ge/index.do
-40,000.00
-20,000.00
0.00
20,000.00
2009 2008 2007 2006 2005
2009 2008 2007 2006 2005
Free cash flow to equity
(FCFE) )
-3,247.00 16,119.00 6,193.00 -15,762.00 4,348.00
Free Cash Flow to the Firm
(FCFF):
-2,869.15 18,168.64 5,763.51 -29,395.89 7,560.76

56. 56
Fidelity Investments: Key Statistics: COP
Studies in the past identified three factors that may cause a poor financial condition: as
identified by (Lang, et al 1995) poor operating performance, capital constraints and the
cost of financial distress. Though, the firm exhibit a strong and impressive balance sheet
during the years under review and effort to create value for shareholders funds with the
ConocoPhillips historical averaged dividend-yield of 2.6547% over the past five years.
However, with 40% debt obligation observed, we could easily conclude that and argue
that ConocoPhillips decision to divest was motivated originated from the above need for
cash to offset its debt obligations, hence, the motives to divest its Assets.
CHAPTER SIX: SUMMARY, CONCLUSION AND RECOMMENDATION
6.1 SUMMARY/CONCLUSION:
Hence, the motives behind the decision to divest might not be mutually exclusive and it
must be concluded that divestitures often have several motives. The researcher also
found that an efficient firm in general will be a firm that are able to keep a strategic fit
between the firms resources, capabilities and the external surroundings. The researcher
found that firms divesting of financial motives are characterized as those with special
financial contains and/or highly levered. Though, company does not have to bankrupt to
take strategic decision on finance, it might be motivated in order to avoid any future
challenge.
Also, the researcher found that two scenarios are present if a firm should be motivated
to divest for financial reasons. Either a firm simply must neglect to react to changes
presumably because the change is not considered vital, or the environmental change is
so sudden that a firm does not have any respond time to correct potential challenges.

57. 57
Though majority of the IOCs Government officials claim officially that their decision to
divest was to encourage Nigerian independents, however, this research revealed that
insecurity of onshore assets, crude oil theft, uncertainty of the operating environment
and the need to secure funding to finance deep-water projects and the lack of passage
of the PIB, uncertain fiscal regime actually fuelled the spate of divestments by the
multinational oil companies. Nigeria’s oil and gas industry face increasing threats; from
crude oil thieves, hostile communities and gloomy operating environment, fuelling the
need for the international operators to limit their level of investment. Hence the motives
though vary in the Nigerian Context however, they are both connected to strategic
motives and a bit of financial constrain when limiting it the focused case to study alone.
Based on analysis and the evaluation of the case study, we could therefore, assumed
that ConocoPhillips decision to divest was based on its global portfolio rebalancing
objectives: strategic and financial.
• Strategic Plans to Increase Unconventional Reserve Base as ConocoPhillips
claims that it plans to use the proceeds of its sale of non-core asset divestments
to increase its production and reserves asset base, especially in unconventional
sources of oil and gas. In 2011, the firm added around 600,000 net acres in liquid
rich plays, which included Niobrara and Wolfcamp. The company has its
presence in seven plays in North America through pilot projects. This will help the
company to increase the average reserve life of its upstream assets from the
current 14.2 years. Currently, the company has the second highest reserve life of
upstream assets among its peers (including super major integrated oil
companies). The main focus in increasing its reserve base will be on developing
its unconventional reserve base. Currently, the company is undertaking several
onshore exploration activities in the Eagle Ford play, the Bakken play in the

58. 58
Williston Basin, the Permian Basin in West Texas and the North Barnett play.
ConocoPhillips has allocated around 86% of its current annual drilling
expenditure for the development of unconventional resources.
• Financial constrain- the firms capital structure consist of approximately 40%
debt therefore, we believe that ConocoPhillips decision to divested its Nigerian
assets was also motivated by the need for cash to buyback stocks and repay
debt. As it was confirmed from its annual report 2009/2010 ConocoPhillips Plans
to Use the Divestment Proceeds for Share Buyback to Increase Shareholder
Return. In 2010, the company bought back 65 million shares for $3.9 billion and
reduced its debt by $5.1 billion. In 2011, the company bought backs about 155
million equity shares for a sum of $11.1 billion and reduced its debt by $1 billion.
Consequently, the company witnessed an increase in its net income over the 2009–2011
periods, resulting in an increase in Earnings per Share (EPS). The company’s net
income increased from $4,414m in 2009, to $11,358m in 2010, increasing further
$12,436m in 2011. As a result of the share buy-back and increase in net income, the
company’s EPS has soared, going from $2.94 in 2009 to $7.62 in 2010, and to $8.97 in
2011.
In general macroeconomic changes are considered to have been the most influential
factor in ConocoPhillips decision to divest.

59. 59
6.3 RECOMMENDATION
Centred on the findings of this research, it is preordained to stipulate a set of policy
proposal that would be appropriate to the Nigerian Oil and Gas Sector:
• Scheduling legislative alertness could be improved which is very
fundamental towards enduring a political threat and fiscal risk in a
unsettled business environment.
• Invest heavenly in New Technology as Rapid innovation drives strategy shifts; take
advantage of disruptive innovation like technology; big data, the cloud
sophisticated drilling equipment’s are transforming the Oil and gas sector hence,
companies need to carefully manage their portfolios to keep pace given their cost
of capital and potential for higher returns.
• Look beyond the challenges; Operational challenges can also prevent oil and Gas
businesses from being bold in their divestment strategies, even if their portfolio
review concludes the need to sell a business unit. Therefore, to succeed, firms
should enable to forge ahead.
• The government should ensure a speedy passage of the PIB and encourage
more private company participation and local participation by providing them with
more encouraging incentives So that better equipped refineries can be built and
the cost of refining crude oil will reduce;
• Security should be boosted on the high sea where crude oil products are being
smuggled. This will help reduce the loss from illegal export of crude oil products
and ensure the safety of the Oil workers;
• Government should give immediate attention to the indigenes of the region
where crude oil is being extracted. This will reduce the unrest in that region;

60. 60
REFERENCES:
A New Vista for Nigerian Oil and Gas Independents; Available at
<http://www.thisdaylive.com/articles/a-new-vista-for-nigerian-oil-and-gas-
independents/162873/> [Accessed on 21st
June 2014]
Acquisition of Upstream Oil & Gas Assets in Nigeria: Legal Issues To Consider.
Available at <http://energymixreport.com/acquisition-of-upstream-oil-gas-assets-
in-nigeria-legal-issues-to-consider/> [accessed on 15th
may, 2014]
Agbonifo, J. O. (2009). Development as Conflict: Ogoni Movement, the State and Oil
Resources in the Niger Delta, Nigeria. Shaker Publishing.
Brealey, R. A., Myers, S. C., and Allen, F (2008). Principles of Corporate Finance. New
York: McGraw-Hill.
ConocoPhillips (2010). ConocoPhillips. Who We Are:
http://www.conocophillips.com/EN/about/who_we_are/Pages/index.aspx
[Accessed 20th
June 2014]
ConocoPhillips Summary Annual Report: (2009) Building on Strengths.
http://www.conocophillips.com/EN/about/company_reports/Documents/Co
nocoPhillips_09AR-Summary.pdf [Accessed 20th
June 2014]
ConocoPhillips (2002). Conoco Inc. History.
http://www.conocophillips.com/EN/about/who_we_are/history/conoco/Pag
es/index.as px [Accessed 20th
June 2014]
Conoco ups dividend 20 pct, sets stock buyback. By Reuters - 11:00am ET 2/11/2011
available at:
http://eresearch.fidelity.com/eresearch/evaluate/news/basicNewsStory.jhtml?sym
bols=COP&pageno=1&storyid=201102111100RTRSNEWSCOMBINED_N11264

61. 61
690_1&provider=RTRSNEWS&product=COMBINED&sb=1&st=1&sc=1&san=1
[Assessed on 24th
June 2014]
CBO Capital Partners Oil & Gas Monitor, “Oil & M&A Unlocking The Oil & Gas Asset
Market in Nigeria.” Lessons from Shell I.F.L. Rev 2012/13, 30 (20), 82.84 – 85
Coase, R. H. (1937). The Nature of the Firm. Economica , pp. 386-405.
Cooney, M. R., Finn, F., & Karl, A. (2004). Australian Divestiture Activity: An
Examination of Gains to Sell-Off Announcements . Australian Journal of
Management , pp. 135-151.
Damodaran, A. (2002). Earnings Multilpes. In A. Damodaran, Investment Valuation.
New York: John Wiley
Data taken from S&P Net Advantage: XOM Compustat Excel Analytics: Annual
Comparative report available at:
http://www.netadvantage.standardandpoors.com.proxy.lib.pdx.edu/NASApp/NetA
dvantage/showExcelAnalytics.do [Assessed on 24th
June 2014]
DePamphilis, D. M. (2010). Alternative Exit and Restructuring Strategies. In D. D.
M., Mergers, Acquisitions And Other Restructuring Strategies. An integrated
Approach to Process, Tools, Cases and Solutions, chapter 15.
Divestment of Assets by IOC, no threat to Oil sector SPE. Available at
http://sunnewsonline.com/new/cover/divestment-of-assets-by-iocs-no-threat-to-
oil-sector-spe/.> [Accessed on 20th December 2013]
Divestment from Oil and Gas Assets-Nigeria. Available at: http://www.westpaq.com/wp-
content/uploads/2013/06/Divestment-from-Oil-Gas-Assets_Rev2.pdf
[Accessed on 1st June 2014]
DePamphilis, D. (2010) Mergers, acquisitions and other restructuring activities: an
integrated approach to processes, tools, cases and solutions. 5th
edn.
California: Academic Press.

62. 62
Fidelity Investments: Key Statistics: COP : Available at:
http://eresearch.fidelity.com/eresearch/evaluate/fundamentals/keyStatistics.jhtml
?stockspage=keyStatistics&symbols=COP [Assessed on 24th
June 2014]
Hendrikse, G. (2003). Economics and management of organizations co-ordination,
motivation and strategy. McGraw-Hill Education.
IOC Divestment in Nigeria: Opportunities, challenges and outlook 1. Available at:
http://www.nigeriadevelopmentandfinanceforum.org/PolicyDialogue/Dialogue.
aspx?Edition=141. [Accessed on 19th
February 2014]
IOC Divestments; good opportunity for Nigeria. Available at:
<http://www.thisdaylive.com/articles/yakubu-ioc-divestments-good-development-
for-nigerian oil-producers/161854.> [Accessed on 28Th June 2014]
Jensen, M. C. (2001). Value Maximization, Stakeholder Theory, and the Corporate
Jensen, M. (1993). Modern Industrial Revolution, Exit and the failure of Internal Control
Systems. Journal of Finance, pp. 831-880.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior,
Agency Costs and Ownership Structure. Journal of Financial Economics , pp.
305–360.
Khan, A. Q., & Mehta, D. R. (1996). Voluntary Divestitures and the Choice between
Sell-Offs and Spin-offs. The financial review, pp. 885-912
Lang, L., Poulsen, A., & Stulz, R. (1995), Asset sales, firm performance and the agency
costs of managerial discretion. Journal of Financial Economics, pp. 3-37.
Modigliani, F., & Miller, M. (1963). Corporate income taxes and the cost of capital: a correction.
American Economic
Review , pp. 433-443.
Moschieri, C. and Mair, J. (2011) Successful divestitures need proper cultivation, IESE
Insight, 9, 2nd Quarter, pp. 50-57.

63. 63
Myers, S., & Majluf, N. (1984). Corporate financing and investment decisions when firms
have information that
investors do not have. Journal of Financial Economics , pp. 187-221.
Nigeria loses =N=159 trn as IOC divest. Available at: http://www.vanguardngr.com/2013/
07/nigeria-loses-n159trn-as-iocs-divest/. [Accessed on 20th
December 2013]
Objective Function. European Financial Management, 297-319
Oil Majors: Divestment or Dumping of Assets. Available at:
http://www.editorialnigeria.com/oil-majors-divestment-dumping-assets-dr-
ifediora-amobi/. [Accessed on 28th
November 2013]
Oil and Gas Discussion BB – Chevron divesting in Nigeria– Oil and Gas Discussion. BB-
Investor Village. Available at:
http://www.investorvillage.com/groups.asp?mb=17397&mn=14403&pt=msg&mi
d=12835782.> [Accessed on 13th
March 2014]
Owen, S., Shi, L. and Yawson, A. (2010) Divestitures, wealth effects and corporate
governance, Accounting & Finance, 50(2), pp. 389-415. http://dx.doi.
org/10.1111/j.1467-629X.2009.00332.x
Paul Hammes (2014) Global Corporate Divestment Study; available at:
http://www.ey.com/GL/en/Services/Transactions/EY-global-corporate-divestment-
study-oil-and-gas-watch [Accessed on 21st August 2014]
Porter, M. E. (1987). Kap.5. In M. E. Porter, From Competitive Advantage to Corporate
Strategy, pp. 117- 151
Porter, M. E. (2008). The Five Competitive Forces that Shape Strategy. Harvard
Business Review , pp. 86-104.
Sun, M. (2012) Impact of divestiture activities on corporate performance: evidence
from listed firms in Taiwan, International Journal of Business and Finance

64. 64
Sawyer, S. (2004). Crude Chronicles: Indigenous Politics, Multinational Oil, and
Neoliberalism in Ecuador. Durham, Duke University Press.
Todaro, M.P and S.C. Smith (2004). Economic Development. 8th edn.
India: Pearson Educatio Ltd. Pp 141-144, 360-417
Research, 6(2), pp. 59-67.
Yang, L. (2008) The real determinants of asset sales, Journal of Finance, 63(5), pp.
2231-2262. http://dx.doi.org/10.1111/j.1540-6261.2008.01396.x [Accessed on
21st August 2014]
Yin, R. K. (2009). Case Study Research - Design and Methods. SAGE Publications,
Inc.
Stakeholders lament future of Nigeria’s oil, gas sector as IOCs divest. Available at:
http://www.ngrguardiannews.com/index.php/news/national-news/136498-
stakeholders-lament-future-of-nigeria-s-oil-gas-sector-as-iocs-divest> [accessed
on 21st
August 2014]
EIA: Petroleum and other liquids: Spot Prices:
http://www.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm [Accessed on 21st August
2014]
CME Group: Light Sweet Crude Oil Futures: Settlements Friday, February 25, 2011;
http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-
crude_quotes_settlements_futures.html [Accessed on 25st July 2014]

65. 65
Appendices:
Appendix A
Free Cash Flow to
Equity
Calculation
Historic
Detailed
COP
$ in millions
2009 2008 2007 2006 2005 5-yr total
Net income 4,858.00 -16,998.00
$
11,891.00 $15,55.00
$
13,529.00
$
28,830.00
Increases in
Long-term
Assets:
Δ in Net Plant,
Property &
Equipment
$
3,761.00
$ -5,056.00
$
2,802.00
$
31,532.00
$
3,767.00
$
36,806.00
Δ in Investments at
Equity
$
4,816.00 $ (494.00)
$
11,864.00 $ 3,767.00
$
5,311.00
$
25,264.00
Δ in Other
Investments $ 829.00 $ 65.00 $ 751.00 $ 1,220.00 $ 7.00 $ 2,872.00
Δ in Intangibles $ (163.00)
$
(25,608.00)
$
(2,207.00)
$
16,000.00 $ 353.00
$
(11,625.00)
Δ in Deferred
Charges $- $- $- $- $- $-
Δ in Other Assets $ 156.00 $ 93.00 $ 97.00 $ (191.00) $ 109.00 $ 264.00
Total Capital
Expenditures
$
9,399.00
$
(31,000.00)
$
13,307.00
$
52,328.00 $ 9,547.00
$
53,581.00
Δ in Minority
Interest Adjustment
$
(1,100.00) $ (73.00) $ (29.00) $ (7.00) $ 104.00
$
(1,105.00)
Increases in
Working Capital:
$
1,220.00
$
(4,359.00)
$
2,248.00 $ 2,166.00 $ 3,152.00 $ 4,427.00
Δ in Net
Receivables
Δ in Inventories $ (155.00) $ 872.00 $ (930.00) $ 1,429.00 $ 58.00 1,274.00
Δ in Prepaid
Expenses - - - - - -
Δ in Other Current
Assets $ (528.00) $ 296.00
$
(2,288.00) $ 3,256.00 $ 554.00 $ 1,290.00
Δ in Accounts
Payable
$
(1,460.00) $ 3,903.00
$
(2,634.00)
$
(2,367.00)
$
(3,136.00)
$
(5,694.00)
Δ in Taxes Payable $ 871.00 $ 541.00 $ (407.00) $ (891.00) $ (362.00) $ (248.00)
Δ in Accrued
Expenses $ 67.00 $ (338.00) $ 538.00 $ 471.00
$
(1,252.00) $ (514.00)
Δ in Other Current
Liabilities - - - - $103.00 $103.00
Δ in Deferred $ 205.00 $ 2,851.00 $ $ $ $

66. 66
Taxes (944.00) (8,635.00) (1,054.00) (7,577.00)
Δ in Other
Liabilities )
$
(2,041.00 $ (781.00)
$
(1,781.00)
$
(1,834.00) $ (811.00)
$
(7,248.00)
Total Working
Capital Increase
$
(1,821.00) $ 2,985.00
$
(6,198.00)
$
(6,405.00)
$
(2,748.00)
$
(14,187.00)
Net Investment
$
8,678.00
$
(27,942.00)
$
7,138.00
$
45,930.00
$
6,695.00
$
40,499.00
Increases in Debt
and Long-term
Liabilities:
Δ in Long Term
Debt Due In One
Year $ (820.00) $ 1,393.00
$
(996.00)
$
(2,052.00)
$
2,285.00 $ 1,126.00
Δ in Notes Payable - - - - - -
Δin Long Term
Debt
$
6,171.00 $ 3,492.00
$
12,333.00
$
(3,612.00)
$
17,564.00
Δ in Investment
Tax Credit - - - - - -
Net New Debt
Issued $ 573.00 $ 5,175.00
$
1,440.00
$
14,618.00
$
(2,486.00)
$
19,320.00
Preferred Stock
Adjustment - - - - - -
Free cash flow to
equity (FCFE) $
7,651.00
$
(3,247.00)
$
16,119.00
$
6,193.00
$
(15,762.00) $ 4,348.00 $ 1,756.00
Δ in Net stock
repurchases $ (13.00) $ 8,051.00
$
6,716.00 $ 705.00
$
1,522.00
$
16,981.00
Dividends
$
2,832.00 $ 2,854.00
$
2,661.00 $ 2,277.00
$
1,637.00
$
12,261.00
Other "FCFE-
related" metrics:
Net payout to
shareholders
$
2,819.00
$
10,905.00
$
9,377.00 $ 2,982.00 $ 3,159.00
$
29,242.00
Net payout to
shareholders/FCFE -86.80% 67.70% 151.40% -18.90% 72.70% 382.20%
Equity
reinvestment rate
(ERR) 166.80% 194.80% 47.90% 201.40% 67.90% 73.50%
Free Cash Flow to
the Firm (FCFF):
EBIT
$
11,806.00
$
(2,034.00)
$
25,160.00
$
30,060.00
$
24,585.00
$
89,577.00
Tax rate - -50.80% 380.50% 48.70% 45.00% 42.00% 64.20%

67. 67

68. 68
Appendix c

69. 69
Appendix D
Formulae Sheet

70. 70

71. 71

72. 72

73. 73

74. 74